A report released last month addresses nine key issues related to South Dakota’s education funding formula. The report represents the work of the State Aid Study Task Force, established in 2005 to assist the Department of Education in studying the nearly 10-year-old formula. (View full report here.)

“This group thoroughly reviewed nine key aspects of the funding formula, and we had some very candid discussions,” said Secretary of Education Rick Melmer. “The report presents a summary of those discussions, along with real-life examples that law makers can use as they consider education funding.”   

Melmer hopes the report will serve as a tool for legislators as they wrestle with funding issues during the 2007 session. Legislators who served on the task force, both Democrat and Republican, are working on legislation that takes into account most of the nine issues. This bill should serve as a starting point for discussion during the upcoming session.

“Any time you talk about making changes, people naturally want to know if they will benefit from the change. What we really need to do is step back and consider what is best for the majority of our students across the entire state,” Melmer said.   

Sparsity, 150 percent rule receive consensus

During the course of its meetings, task force members reached consensus on two of the nine issues it discussed: sparsity and property tax.

Task force members almost universally agreed that the new sparsity formula should be continued. In order to make the formula as efficient and fair as possible, however, the report encourages legislators to consider the following:

• Review the mileage requirement (currently 20 miles) to ensure that receiving districts are truly sparse

• Examine the maximum sparsity payment (currently $250,000 per district)

• Consider an equal fund balance cap for all districts

Regarding the issue of property tax, the 150 percent rule was discussed extensively. This rule excludes from the valuation process any sale of agricultural or non-ag property where the property is sold for more than 150 percent of its assessed valuation. The state’s revenue department estimates that approximately $4 billion of value currently is not being taxed because of this rule.

When asked, a clear majority of task force members (84.2 percent) felt that the 150 percent rule should be repealed.

Minimum district size

Even with the small school factor, the state’s smallest districts struggle to meet the financial demands of offering an educational program. Of the 39 smallest districts (200 or fewer students), 82.1 percent opt out of the funding formula.

Student achievement levels do not appear to suffer due to enrollment challenges. Students in the state’s smallest districts typically achieve at or above their peers on the Dakota STEP. However, high school students in large districts (more than 600 students) outperform their small-school peers on the ACT. The task force briefly studied the educational opportunities available to high school students based on district size.

Small school factor

Approximately $16.7 million is distributed to school districts through the small school factor. Of that amount, districts with fewer than 200 students receive a total of $4.4 million. Districts with 200 to 400 students receive a total of $10.9 million, and districts with 400 to 600 students receive $1.4 million. The report states that, when looking for efficiencies in the existing formula, this is one area that could be examined.

Consolidation incentives

Task force members agreed that consolidation incentives have merit. The report notes that future discussion should include an evaluation of the current practice of extending the small school factor for eight years after consolidation. Discussion also focused on the possibility of increasing the consolidation incentives to determine if they truly encourage reorganization.

Enrollment calculations

More task force members supported the concept of providing relief to districts with increasing enrollment than to districts with decreasing enrollment. Relief could be in the form of a one-time payment. The task force also explored the possibility of a fall enrollment count as a requirement for the current ADM system.

Capital outlay

A small number of districts need to build new facilities but do not have the capability to bond for enough money to cover their costs. The task force identified a possible solution: Establish a Facility Equity Fund to assist districts with demonstrated need for capital outlay dollars.

Fund balance

Many task force members agreed with the concept of a consistent fund balance cap across the state. The report calls this move “a step in the right direction.”

Other revenue

If the “other revenue” category was to be equalized, a small number of districts would be significantly negatively impacted. Many districts would not see a significant change one way or the other. Task force members were almost evenly split on this issue.
 

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